The business case against Kinder Morgan

Sunday’s summit on Kinder Morgan between Prime Minister Justin Trudeau, Alberta Premier Rachel Notley and B.C. Premier John Horgan is not expected to lead to a resolution of the pipeline standoff. “Under any scenario, I don’t think we’re going to leave announcing a solution,” said one senior Alberta official to the Calgary Herald.

So take a deep breath, and settle in for more political theatre and gnashing of teeth. If you’re reading our legacy pundits you’ll be familiar with the refrain. “It’s too bad about the C02 emissions, and gee whiz we’re sorry for those Indigenous folks, and the coast, but no one can stand in the way of progress and this is a whiz-bang of a no-brainer for our economy.”

So let’s channel our inner Andrew Coyne, set aside our moral considerations about the climate, the coast and the First Nations of this land for a moment, and look at a few key stories you aren’t hearing from the legacy press about the business case for this pipeline.

Would it make sense for our government(s) to buy all or part of this project with our tax dollars? Or is Kinder Morgan, a company let’s not forget that began life as a division of Enron, running a pump and dump scam, with our government slated to be their next sucker?

First we’ll look at the charge that Kinder Morgan is misleading investors about the need for the pipeline expansion. Then we’ll look at the impact of a new generation of mega-tankers and mega-ports on global oil prices and the future viability of the project. Finally we’ll try to clear up the confusing claims by Kinder Morgan of Indigenous support, and illuminate the serious threats posed to the pipeline project by Indigenous peoples both in and out of the courts.

Misleading investors

For economist Robyn Allan, it’s pretty simple: Kinder Morgan is misleading their investors. Writing for the National Observer, Allen points to a Kinder Morgan investor meeting held in Toronto in early March. There they presented a graph showing what they described as a “pipeline shortfall” to illustrate the need for the Trans Mountain expansion.

“If local refinery demand were to be added to Kinder Morgan’s picture — as it should be — it would clearly show that Trans Mountain’s expansion is not needed for at least a decade, if ever.”

“The graph suggests that a shortfall in pipeline export capacity has existed since early 2017.”

Contrary to that picture, data from Enbridge and OpenCanada show there was sufficient pipeline capacity to deliver exports to markets throughout 2017, until a Keystone leak in mid-November caused a strain on the system.

Allen argues the discrepancy is because “Kinder Morgan has failed to include local refinery demand for crude oil in its picture. That’s a big mistake — about the size of Trans Mountain’s expansion. In 2017, refineries in Alberta and Saskatchewan required about 550,000 barrels a day of Western Canada supply.”

So what would that graph look like if it included the demand from our own refineries?

“If local refinery demand were to be added to Kinder Morgan’s picture — as it should be — it would clearly show that Trans Mountain’s expansion is not needed for at least a decade, if ever.”

What about the “premium prices” at tidewater?

Back in February the Louisiana Offshore Oil Port (LOOP) was officially opened, filling up one of a new generation of Very Large Crude Carriers (VLCC) capable of carrying two million barrels of oil. It is the first and only American port capable of filling these super-super-tankers and is bidirectional, allowing for the rapid shipping of oil in and out of the United States to take advantage of price swings and speculation.

The global oil shipping market is moving towards VLCC’s and the mega-terminals that can serve them argues investigative journalist Paul McKay. The smaller tankers that can access B.C.’s supply lines carry only a quarter of a VLCC’s load, and take longer to deliver it.

“When the undeniably dirty content of Alberta’s bitumen deposits is added into these negative cost equations, global oil players know when to cut and run.”

Future customers will expect exporters to match the prices and speed they can get from LOOP, and will also expect a discount due to the character of Alberta’s oil, which requires a more expensive refining process than most other types of bitumen.

“These important changes in tanker and terminal technology and scale are no secret in the oil industry outside Canada. Nor is the dirty chemical composition of tar sands/oil sands bitumen. Nor is the cutthroat competition among global oil producers, refiners, shippers, and speculators, in which nickels per barrel of oil delivered are fought over fiercely,” writes McKay.

So after all these write-downs, is the TransMountain expansion still a profitable investment?

“When the undeniably dirty content of Alberta’s bitumen deposits is added into these negative cost equations, global oil players know when to cut and run. … This helps explain why, in the recent past, oil giants such as Exxon-Mobil, Conoco-Phillips, Royal Dutch Shell, Total S.A., and Norwegian oil company Statoil have abandoned gargantuan bitumen deposits in western Canada and/or taken billion-dollar write-downs, to the howls of shareholders.”

If the project is so risky, why does Kinder Morgan still want to build it?

Perhaps some part of the answer to this question can be found in the long term guaranteed contracts Kinder Morgan has with thirteen shippers. For details we turn back to economist Robyn Allan, this time writing in the National Post in 2015.

Companies like Suncor, Cenovus, CNRL, Imperial Oil, Nexen, and Total, have contracted for 707,500 barrels a day of the 890,000 barrels a day of available capacity on the two lines. All but one of the shippers have signed on for 20 years. If the project proceeds, these shippers have no choice but to pay up every month for contracted capacity, whether or not it makes business sense to physically ship down the lines.

The new pipeline could sit empty but Kinder Morgan would still book vast returns. It plans to siphon more than $800 million a year from the Canadian economy to its head office in Houston.
Meanwhile, these long term take-or-pay contracts represent an ongoing cost for Canadian oil producers and marketing businesses of more than $20 billion over the life of the contracts.

Misleading investors - part two

The headline of a December, 2016 report on the website of JWN Energy leaves little room for doubt. “All First Nations crossed by Trans Mountain pipeline route in support of project: Kinder Morgan.”

Kinder Morgan is effectively telling their investors that they have the secret consent of a variable number of Indigenous Band councils, which they bought with cash, the recipients of which remain unwilling to support the pipeline publicly, but that as a result of these secret deals no one should worry about the lawsuits, protests and widespread Indigenous opposition.

Citing a statement by Kinder Morgan Canada president Ian Anderson, it reports the following:

“Kinder Morgan says it engaged with 133 Aboriginal communities, and the majority that the project crosses--either pipeline or tanker--have signed on. The pipeline crosses nine First Nations Reserves in British Columbia, all of which Trans Mountain has agreements with.”

It’s an argument I’ve heard a few times on social media. This idea that Indigenous peoples have all consented. Or something like that. No one saying it is ever really sure.

The reality is that over 150 First Nations and Tribes across Canada and the U.S. have signed on to a Treaty Alliance against pipelines including the Kinder Morgan Expansion, and Indigenous elders and leaders from across Canada, as well as representative organizations like the Union of B.C. Indian Chiefs and Assembly of First Nations, have spoken out loudly and repeatedly against the pipeline.

Kanahus Manuel is a leader with the Tiny House Warriors and the Secwepemc Women Warrior’s Society. Writing in the Toronto Star in September, 2017 she argued there was a “clear lack of consent from more than half of the First Nations whose land [the pipeline] threatens.”

So why are we hearing two different stories? Well, it may all come down to the word “reserves” in Kinder Morgan’s assertion above.

The federal government unilaterally approved the original Trans Mountain Pipeline in 1951, when Indigenous Peoples were prohibited from organizing on land issues and holding our ceremonies. The original pipeline went into operation in 1953 without the consent of the Secwepemc.

Today, once again the federal government has approved the proposed expansion of the Trans-Mountain pipeline without the consent of the Secwepemc. Kinder Morgan has signed deals with a few Indian Bands Councils, in a cynical attempt to divide and conquer our people.

We remind them that Indian bands are not the title holders of Secwepemcul’ecw. Indian bands have only delegated authority from the federal government on Indian Reserve lands, which currently cover only 0.2% of the territory claimed by Canada, which entrenches our poverty through dispossession, dependency and oppression. Indian Band councils have no independent decision-making power regarding access to our Secwepemc territory. The Secwepemc collectively are the only decision-making authority regarding our lands and waters.

It seems as though by using the word “reserves” Kinder Morgan is alluding to cash deals they have struck with Band councils along the pipeline route, who represent a minority of the territory it would cross. It’s hard to be sure though, because the identities of these recipients of Kinder Morgan cash are not made public, and the number of such agreements claimed by the company has fluctuated.

Kinder Morgan is effectively telling their investors that they have the secret consent of a variable number of Indigenous Band councils, which they bought with cash, the recipients of which remain unwilling to support the pipeline publicly, but that as a result of these secret deals no one should worry about the lawsuits, protests and widespread Indigenous opposition.

A decision is expected soon, and if they win the project is as good as dead. If they lose, the case will all but certainly go on to the Supreme Court, where cases often take over two years to be heard. No matter what any level of government does, this project will face the risk that a court could shut it down for at least two more years.

An access to information request earlier this month by Mike De Souza with the National Observer found that the senior public servant in charge of consultations with First Nations on the pipeline project warned the Trudeau government consultations were “moving fast” just weeks before the pipeline was ultimately approved. I’m no lawyer, but that sounds like it might not be good for the court case.

But let’s suppose they win. Imagine that it’s mid-2020, and the Supreme Court rules in favour of the pipeline. Finally, a green light! Not so fast. Indigenous blockades are likely to spring up, and not just in B.C. The Treaty Alliance is like a mutual defence pact. It compels its signatories to assist each other when called upon in the fight against pipelines and tar sands expansion.

“If the government insists on ignoring its commitment to First Nations, we’re looking at unrest in many areas of the country, not just in British Columbia,” said Kanesatake Grand Chief Serge Simon, in an interview with the Montreal Gazette.

Kinder Morgan is misleading its investors by misrepresenting Indigenous sentiment towards the pipeline as well as demand for the oil it will transport.

For any Kinder Morgan investors out there who are unfamiliar with the Oka crisis, I really suggest Googling it.

Kinder Morgan is misleading its investors by misrepresenting Indigenous sentiment towards the pipeline as well as demand for the oil it will transport. They’re pumping up a deeply damaged asset in hopes they can get a quick return for it. Now the next investor may be the government of Canada, and/or the government of Alberta.

Leaving aside all moral considerations, this doesn’t really sound like a project I would want my tax dollars, or my other dollars, invested in. What about you?